Appellate Body chair expects mounting delays as systemic issues persist

Appellate Body chair expects mounting delays as systemic issues persist

June 08, 2017

Inside US Trade

The chair of the World Trade Organization Appellate Body said this week he expects decisions to be increasingly delayed as numerous complicated cases are appealed at the same time, WTO members object to panel reports at a growing rate and other systemic issues go unresolved.

During a June 8 speech in Geneva, WTO Appellate Body chairman Ujal Singh Bhatia also warned that persistent delays may make protectionist measures that violate WTO rules more attractive to WTO members because dispute settlement proceedings are becoming more and more drawn out.

Quoting a statement made by South Korea during an August 2015 meeting of the Dispute Settlement Body, at which the country complained about a delay in its dispute with the U.S. over antidumping duties placed on Korean oil country tubular goods, Bhatia said, “Long delays created perverse incentives by lowering the cost of adopting and maintaining WTO-inconsistent measures.”

“Interest groups seeking protection would pressure Members to adopt these measures, insisting rightly, that they would not be subject to review by the WTO for years. Members could therefore expect more protectionist measures, and more, not less, disputes being brought to the WTO,” he said, quoting South Korea.

Korea, in that statement, also pointed out that delays in dispute settlement impact workers and companies and are not merely abstract legal fights. Bhatia added that “when delays in WTO dispute resolution become the norm, they cast doubt on the value of the WTO's rules-oriented system itself."

“An erosion of trust in this system can lead to the reemergence of power orientation in international trade policy. Delays compel WTO Members to look for other solutions, potentially elsewhere. And in this, it is the weaker countries that stand to lose the most,” he said, according to his prepared remarks.

Bhatia named three reasons why the Appellate Body’s plate is becoming so full that delays of increasing length are largely inevitable: WTO members are appealing panel reports at a higher rate than before; compliance proceedings are being used by members more often; and members have yet to agree how to resolve the need for so-called sequencing agreements.

Bhatia also pointed out that the Appellate Body is grappling with a high volume of disputes -- some of which are very complicated -- and expects to be tasked with more this year.

“Over the last several years, the Appellate Body has repeatedly informed WTO Members that, in view of the limited resources available to it, the increasing build-up of appeals is steadily leading to significant delays in their disposal,” he said. “The mismatch between Appellate Body resources and the number, size and complexity of appeals has significantly intensified this year.”

In making that case he pointed out that the Appellate Body is dealing with five appeals, including the European Union’s appeal of the compliance panel report in the exceedingly complex Airbus fight -- DS316. Bhatia predicted that five more appeals would be filed in 2017, including a U.S. appeal in another highly complicated case, DS487, brought by the EU on alleged subsidies provided to Boeing. Those disputes will occupy Appellate Body staff and prevent them from working on other proceedings “for considerable periods of time,” Bhatia said.

“By the end of the year, if all five of the projected appeals materialise, there will be further delays of several months in fully staffing and taking up these appeals,” he continued, according to his prepared remarks.

On the rate of appeals, Bhatia said that over the past 10 years about 68 percent of panel reports were formally questioned by members, but in 2016 that rate jumped to 88 percent.

Bhatia also called for a long-term solution to the sequencing agreements problem, noting that recently members have taken advantage of inconsistencies between Articles 21.5 and Article 22.6 in the Dispute Settlement Understanding by seeking authorization to retaliate before parallel compliance panel proceedings concluded.

“This development appears to be related to the larger issue of delays in WTO dispute resolution,” Bhatia said. “Parallel proceedings under Article 21.5 and Article 22.6 involving the same dispute -- in the absence of sequencing agreements -- convey an impression of dysfunction."

“Addressing the sequencing issue is of great importance for the successful operation of the WTO dispute settlement system, in which WTO-consistency is to be determined multilaterally and which provides for the right of appellate review of panel findings of inconsistency in Article 21.5 proceedings,” he added.

The issue of a need for sequencing agreements is rooted in inconsistencies between Articles 21.5 and Article 22 in the DSU, which has led to an unresolvable lack of clarity over whether compliance or retaliation ought to take precedence in dispute proceedings. Article 21.5 provides a compliance panel 90 days to carry out its work, while Article 22.6 mandates that the DSB grant authorization to retaliate over noncompliance within 30 days of the expiration of a reasonable period of time. Arbitration over the amount must take no longer than 60 days following the expiration of the reasonable period of time.

The differing timetables leave open the possibility that the examination of a party's compliance might not be completed before the DSB's decision on a retaliation request, creating a situation in which retaliation may be authorized without a clear picture of the responding party's compliance in a dispute. For example, the U.S., in its challenge of India’s measures that prohibited imports of U.S. poultry due to avian flu fears, has plowed ahead with retaliation proceedings while a compliance panel, requested by India, reviews new measures from New Delhi. The U.S. and India in that dispute did not forge a sequencing agreement.

“The situation therefore requires responsible and careful action by Members to ensure that the system continues to function well,” Bhatia said. “I note that this matter came up for extensive discussion in recent DSB meetings, including, in particular, the last meeting of the DSB. It is our hope that broad agreement can be reached among Members on this important issue.”

“There could be multiple reasons for these recent developments, but it is hard to ignore the underlay of restlessness with the increasing delays, which seem to be pushing Members to explore other options in pursuing their disputes,” he added. “We can only speculate about the medium-term consequences of these developments on the credibility and utility of the WTO dispute settlement system.”

In a call to action, Bhatia suggested members may look to rejuvenate DSU reform negotiations -- which have been ongoing for nearly 20 years -- by prioritizing certain issues over others. The Appellate Body is open to consultations on those issues, Bhatia said.

He noted that there is a “high level of satisfaction among Members regarding the Appellate Body’s functioning,” but added that three critiques linger. Members have voiced displeasure over the time frames for appellate review; alleged “overreach” by the Appellate Body; and the “comprehensibility” of reports.

Bhatia took on each critique. He said the Appellate Body itself is also constantly reviewing how to balance high-quality work with the timeliness demanded by the DSU and WTO members. “The Appellate Body gives much importance to the need to keep appellate proceedings as short as possible. However, it is obliged to address each finding and each legal interpretation appealed,” he added.

“WTO Members expect from the Appellate Body, and the Appellate Body has the responsibility to provide, reports of the highest quality, which, once adopted, assist the DSB in resolving disputes between Members. As the forum of last recourse, the Appellate Body cannot afford to take shortcuts.”

Responding to allegations of overreach --raised by the U.S. in the saga over the failed reappointment of former Appellate Body member Seung Wha Chang -- Bhatia said clarifying the “scope and meaning” of provisions central to a dispute “are an essential part of the mandate of the WTO dispute settlement system and the Appellate Body.”

He also said the Appellate Body is “well aware that panels and the Appellate Body cannot add to or diminish the rights or obligations provided for in the covered agreements,” while adding that “the Appellate Body's mandate requires it to address all issues raised on appeal.”

“As the DSU stipulates, the Appellate Body has to discharge this mandate ‘in accordance with the customary rules of interpretation of public international law,’” Bhatia said. “The Appellate Body is constantly aware of the need to ensure that each and every of its clarifications of WTO provisions meets this standard.”

On the issue of comprehensibility, Bhatia continued, the Appellate Body is working on making reports more intelligible to all stakeholders. He pointed to the “findings and conclusions” section of reports as one “innovation” in that regard.

Arguing that the issue of delays will not solve itself, Bhatia said “like any other man-made system, the WTO's dispute settlement system should not be taken for granted. It requires nurturing through timely interventions when problem areas emerge."

“The issue of delays is one such problem area which calls for broad, systemic solutions. It should be possible to find such solutions through determined action by WTO Members,” he concluded.